Over the past few years, employee fraud has been a significant threat to organizations worldwide. Even with the conscious efforts taken by business owners to ensure that they hire the right candidates, it has proven less effective as organizations still find themselves hiring the wrong candidates. It is important to note that the financial and reputational damage resulting from hiring individuals with fraudulent intentions can be way more catastrophic, ranging from the financial impact to the reputational and compliance costs. This is where employment background checks play a crucial role in shielding businesses from potential risks. Companies can significantly reduce the likelihood of fraud by ensuring that new hires have the integrity, credentials, and background to fulfill their roles.
Below, we highlight some key statistics and insights that underscore the importance of implementing employment background checks to protect your business from the looming risks of employee fraud.
The Cost of Employee Fraud
- Financial Impact
Employee fraud can have a devastating effect on a company’s bottom line. According to the American Institute of Certified Fraud Examiners (ACFE), organizations lose approximately 5% of their gross revenue to fraud each year. In monetary terms, this translates to total global losses of $6.3 billion, with a median loss per fraud case amounting to $150,000 (5). These figures highlight the significant financial threat posed by fraudulent employees, making preemptive action through background checks a necessity.
- Prevalence of Fraudulent Behavior
Internal employee theft is alarmingly common. Research indicates that 90% of costly employee theft cases originate from within the workforce. This statistic emphasizes the need for organizations to conduct thorough pre-employment screening to weed out potential bad actors. Without proper vetting, businesses may unknowingly hire individuals who could later engage in fraudulent activities, leading to significant losses.
- Lying on Resumes
Resume fraud is a widespread issue that can lead to hiring unqualified or dishonest individuals. It’s estimated that 107 million working Americans have admitted to lying on their resumes at least once. Falsifying credentials, such as education or job experience, can result in hiring individuals who are not only unqualified for their roles but may also engage in unethical or fraudulent behavior once employed.
Benefits of Background Checks
- Verification of Credentials
Background checks are a powerful tool to verify an applicant’s identity, qualifications, and employment history. This validation process helps to reduce the risk of hiring individuals with false or exaggerated credentials. By confirming that candidates have the required experience and qualifications, businesses can ensure that new hires are capable and trustworthy, minimizing the risk of fraud.
- Criminal Record Checks
One of the most critical aspects of a background check is a criminal record screening. With 1 in 3 Americans having a criminal record, it’s vital for employers to identify any past legal issues that may indicate a risk of future misconduct. Criminal background checks can help employers avoid hiring individuals who may have a history of fraud, theft, or other criminal behavior, thus protecting their organization from potential harm.
- Credit History Insights
Conducting a credit history check can provide valuable insights for businesses hiring individuals into roles involving financial responsibilities. Candidates under financial stress may be more prone to engaging in fraudulent behavior, such as embezzlement or theft. By assessing a candidate’s financial background, employers can identify potential red flags and take appropriate precautions when making hiring decisions.
- Ongoing Monitoring
Background checks shouldn’t be a one-time event limited to the hiring process. Implementing random background checks during employment can help identify early signs of potential fraud, such as sudden financial changes or new legal issues. Ongoing monitoring allows companies to proactively address risks before they become major problems, ensuring the continued safety and integrity of their workforce.
Strategies for Effective Background Checks
- Comprehensive Policies
To ensure the effectiveness of background checks, businesses must develop clear and comprehensive policies that comply with legal regulations. These policies should outline the scope of the background checks, the roles for which they are required, and how frequently they should be conducted. In addition, companies must stay up to date with changing regulations to ensure their policies remain compliant with relevant laws.
- Utilization of Technology
Leveraging technology can significantly enhance the accuracy and efficiency of background checks. Advanced tools and third-party services can automate the process of verifying a candidate’s credentials, criminal background, and financial history. These tools not only save time but also ensure that background checks are thorough and reliable, helping businesses make more informed hiring decisions.
- Cultural Fit Assessment
While the primary purpose of a background check is to mitigate the risk of fraud, it can also help assess whether a candidate is a good cultural fit for the company. By evaluating a candidate’s past behavior and values, businesses can gauge whether they align with the company’s mission and ethics. Hiring employees who fit the company culture can lead to improved retention rates and long-term success.
Get Started With Prembly’s Background Check Solution
Implementing thorough employment background checks is not just a regulatory requirement, but a strategic imperative for businesses aiming to safeguard their assets and maintain a trustworthy workforce. By addressing the risks associated with employee fraud through comprehensive screening processes, companies can protect themselves from significant financial losses and reputational damage.
Prembly is a leading provider of Know Your Customer (KYC) and background check solutions among other services. We provide reliable information backed by data to ensure organizations safely hire and onboard right. Our comprehensive background screening packages can be customized per the organization’s specific needs, and turnaround times are typically 24 hours – 6 business days depending on the package chosen. Visit our website at https://prembly.com to learn more about our background check services and other solutions or request to speak to sales directly here.
